The benchmark 10-year Treasury as of day-end Wednesday had fallen to a new low for the year below 2.7%, pressuring mortgage rates downward as the Dow dropped 265 points, dragging most industry stocks down as well.
Some mortgage stocks commonly tracked by this publication were down by 3% on the day, somewhat in line with the Dow’s drop of about 2.5%. But others had dropped by as much as almost 8%. For example: Hudson City Bancorp was down about 3.1%, while Bank of America was down roughly 3.2% and PMI was down approximately 7.95%.
Chief U.S. financial economist Brian Bethune at IHS Global Insight had earlier told NMN rates had already been dropping in anticipation of the Fed’s decision to reinvest principal payments from agency mortgage-backed securities and debt into longer-term Treasury securities. At the time of that interview Tuesday afternoon it looked as if the 30-year mortgage rate could drop another five to 10 basis points more beyond its recent average around 4.50% in reaction to the Fed’s decision to follow through with that plan. The low rates may not be sustained, “but there’s a nice window here,” said the economist.
When asked about how much of an effect this will have given the tight underwriting that has been constraining mortgage market activity, he confirmed it could cause “hiccups in having these rates feed through.”
Still, he said, “it’s important to have as much easing out there as possible” given the fragile state of the economy.
